Author: Chief China Economist's Office, Hong Kong Exchanges and Clearing Limited、Qianhai Mercantile Exchange Co., Ltd.
REPORT SUMMARY
Currently, the international commodities markets show a marked trend of globalisation. In Mainland China, many of the commodity raw materials and industrial products that are closely linked to industries in the real economy involve significant volumes of imports and exports. This has given rise to an urgent need for a truly market-oriented and internationalised commodity trading platform. Qianhai Mercantile Exchange (QME) strives to establish a regulated and transparent nation-wide spot trading platform for commodities in a systematic and organised manner, so as to facilitate the orderly development of the spot market. QME will also innovate and explore new business models to solve the financing problems faced by commodity enterprises, and attempt to progressively set up a Renminbi (RMB) pricing centre for global commodities in phases through connecting Mainland China with the world. China’s status as the world's leading trader and consumer of commodities is not matched by a proportionate pricing power and influence in the global market. One of the important reasons is that the development of the commodities market in Mainland China has inclined towards commodity futures and other derivatives which have a speculative nature, neglecting the spot commodities market which truly serves the real economy, resulting in the latter’s severe underdevelopment and apparent shortcomings. Lacking an exchange which is supposed to perform the major functions of spot trading, delivery, physical settlement, supply-chain finance and other market functions closely related to the real economy, the Mainland is unable to capitalise on its industry demand and large consumption such that the pricing power for major commodities currently rests mainly in established western exchanges such as those in London, New York and Chicago. Furthermore, without a reliable nation-wide spot commodity exchange, infrastructure services that meet financial risk control requirements and industry standards and specifications are not available. The lack of such services coupled with the high financing and logistics costs in the manufacturing industry and spot market results in a large number of enterprises, especially small and medium-sized enterprises (SMEs) and traders, facing the problem of not being able to obtain effective financial support.